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Dehaier Medical Announces 2012 Third Quarter Financial Results

BEIJING, Nov. 12, 2012 (GLOBE NEWSWIRE) -- Dehaier Medical Systems Ltd. (Nasdaq:DHRM) ("Dehaier" or the "Company"), an emerging leader in the development, assembly, marketing and sale of medical devices and homecare medical products, today announced its financial results for its third quarter ended September 30, 2012.

Comments from Management

Mr. Ping Chen, Chief Executive Officer of Dehaier Medical, stated, "For the nine months ended September 30, 2012, our performance has been in line with management's expectations. We are adjusting our business strategy, to expand into government procurement projects and the burgeoning respiratory and oxygen homecare market. This shift has softened our revenue growth, we believe temporarily. However, management expects the new strategy to benefit the Company in the future as we rely more on a combination of higher margin proprietary products and services and higher revenue large-scale projects. We believe our business will accelerate its expansion and grow at a healthy rate in long term."

Recent Operating Highlights

September 2012

Awarded a 3-year procurement agreement for our proprietary air compressors and customized trolleys from a major medical equipment manufacturer in Ukraine.

Entered into a two-year distribution agreement with GCE group, a leading global compressed gas-equipment company, to become the exclusive distributor for GCE's EASE II product in Mainland China. The newly-distributed product can be widely used in many fields including disaster relief efforts, national defense, emergency rooms, ambulances, and medical institutions.

Signed three medical equipment procurement agreements with Beijing's Hospitals 304 and 307, two of China's most well-known first-tier hospitals, and with Beijing Kanglian Medicines Co. for the China Development Bank Rural Medical and Health Construction Project.

Obtained software copyrights for Mega Pixels, which is used in our Dehaier Explorer C-Armed X Ray Machine Series. This is our fifth software copyright this year.

October 2012

Won a government procurement contract with Xinjiang Province to distribute medical equipment to Hospitals in Xinjiang. The contract will be implemented by the end of 2012.

Received government subsidies worth RMB118,100 for short-term bank loan interest, as a result of favorable treatment granted to High Technology Enterprises like ours.

Third Quarter 2012 Financial Highlights

Our total revenues decreased by 2.81% from $5.69 million for the three months ended September 30, 2011 to $5.53 million for the three months ended September 30, 2012. In the third quarter of 2012, the decrease in revenues was mainly due to our operating strategy changes to expand into government procurement projects and homecare oxygen therapy services, while maintaining our traditional medical devices business.

Our gross profit decreased from $2.42 million in the three months ended September 30, 2011 to $2.07 million in the same period of 2012, while the gross margin decreased from 42.49% in 2011 to 37.39% in 2012. The management believes such decrease in gross margin is a result of the increase in cost of revenue. The amortization of our newly launched software and raw material cost increases resulted in this increase in cost of revenue.

As a result of the foregoing, we generated operating income of approximately $1.41 million and $1.66 million in the three months ended September 30, 2012 and 2011.

Our net income was approximately $1.04 million in the three months ended September 30, 2012, compared to approximately $1.38 million in 2011, a decrease of 24.72%, mainly because of the increase in general and administrative expenses, financial expenses and non-cash change in the fair value of our warrants liability.

After deduction of non-controlling interest in income, the Company reported net income attributable to the Company of $1.04 million, or $0.22 per diluted share in the 2012 third quarter, compared to $1.37 million, or $0.31 per diluted share in the prior year.

Fiscal 2012 Nine Month Financial Highlights

Our total revenues decreased by 3.22% from $16.35 million for the nine months ended September 30, 2011 to $15.83 million for the nine months ended September 30, 2012. Since our government procurement efforts and homecare business are still at a relatively early stage, our overall revenues and net income are slightly lower than in 2011.

Our gross profit decreased from $6.26 million in the three months ended September 30, 2011 to $6.05 million in the same period of 2012, while our gross margin decreased slightly from 38.25% in 2011 to 38.22% in 2012 due to the faster decrease in revenues than in cost of revenues. Management believes the Company's gross margin is likely to remain relatively stable over the near term.

As a result of the foregoing, we generated operating income of approximately $3.79 million in the nine months ended September 30, 2012, compared to approximately $3.88 million in the same period of 2011. Operating income decreased by 2.25%, mainly because of the narrowed gross margin.

Our net income was approximately $2.85 million in the nine months ended September 30, 2012, compared to approximately $3.33 million in 2011, a decrease of 14.47%, mainly because of a change in the fair value of our warrants liability, a non-cash expense.

After deduction of non-controlling interest in income, the Company reported net income attributable to the Company of $2.85 million, or $0.61 per diluted share in the nine months ended September 30, 2012, compared to $332 million, or $0.74 per diluted share in the prior year.

Balance Sheet Highlights

(in millions)

9/30/2012

12/31/2011

Cash and Cash Equivalents

$3.2

$3.7

Working Capital

28.0

27.0

Total Long-term Debt

0

0

Stockholders' Equity

33.4

30.2

As of September 30, 2012, we had $3.17 million cash and cash equivalents. As a result of the total cash activities, net cash decreased from $3.69 million at December 31, 2011, mainly because we invested in obtaining copyright protection for our software for our future development.

We believe that our currently available working capital of $28 million including cash, should be adequate to meet our anticipated cash needs and sustain our current operations for at least 12 months.

About Dehaier Medical Systems Ltd.

Dehaier is an emerging leader in the development, assembly, marketing and sale of medical products, including respiratory and oxygen homecare medical products. The Company develops and assembles its own branded medical devices and homecare medical products from third-party components. The company also distributes products designed and manufactured by other companies, including medical devices from IMD (Italy), HEYER (Germany), Timesco (UK) and eVent Medical (US). Dehaier's technology is based on six patents and five software copyrights; additionally Dehaier has two pending software copyrights and proprietary technology. More information may be found at http://www.dehaier.com.cn.

Forward-looking Statements

This news release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, government approvals or performance, and underlying assumptions and other statements that are other than statements of historical facts. These statements are subject to uncertainties and risks including, but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, future developments in payment for and demand for medical equipment and services, implementation of and performance under the joint venture agreement by all parties, and other risks contained in reports filed by the company with the Securities and Exchange Commission. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.

(Tables to Follow)

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

September 30,

December 31,

2012

2011

US$

US$

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

3,165,481

3,694,486

Accounts receivable

-less allowance for doubtful accounts of $898,900 and $859,509

13,153,751

12,159,842

Contract Deposits

3,602,709

2,110,942

Other receivables

504,418

411,194

Advances to Suppliers

5,196,015

4,348,847

Prepayment and other current assets

2,092,196

2,365,154

Inventories, net

3,808,805

5,532,311

Tax receivable

320,140

888,452

Deferred tax asset

118,403

118,030

Total Current Assets

31,961,918

31,629,258

Property and equipment, net

2,987,516

3,348,533

Intangible assets, net

2,706,301

--

Total Assets

37,655,735

34,977,791

LIABILITIES AND EQUITY

CURRENT LIABILITIES:

Short-term borrowings

2,386,365

1,585,890

Accounts payable

68,862

32,925

Advances from customers

201,883

303,000

Accrued expenses and other current liabilities

325,323

349,158

Taxes payable

618,437

2,042,048

Warranty obligation

335,739

334,680

Total Current Liabilities

3,936,609

4,647,701

OTHER LIABILITIES

Warrants liability

381,797

96,469

Total Liabilities

4,318,406

4,744,170

Commitments and Contingency

Equity

Common shares, $0.002731 par value, 18,307,038 shares authorized,4,590,000 and 4,560,000 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively

12,536

12,454

Additional paid in capital

13,419,238

13,281,374

Retained earnings

15,794,528

12,941,572

Accumulated other comprehensive income

2,695,246

2,585,488

Total Dehaier Medical Systems Limited shareholders' equity

31,921,548

28,820,888

Non-controlling interest

1,415,781

1,412,733

Total equity

33,337,329

30,233,621

Total liabilities and equity

37,655,735

34,977,791

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F2

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

（UNAUDITED）

For the nine months ended

For the three months ended

September 30,

September 30,

2012

2011

2012

2011

US$

US$

US$

US$

Revenue

15,828,179

16,354,533

5,529,120

5,689,043

Costs of revenue

(9,779,058)

(10,098,506)

(3,461,742)

(3,272,012)

Gross profit

6,049,121

6,256,027

2,067,378

2,417,031

Service income

225,326

215,069

92,411

58,641

Service expenses

(49,150)

(83,355)

(11,877)

(21,983)

General and administrative expense

(1,463,671)

(1,412,859)

(432,169)

(396,692)

Selling expense

(966,937)

(1,093,013)

(304,085)

(398,520)

Operating Income

3,794,689

3,881,869

1,411,658

1,658,477

Financial expenses (including interest expense of $107,965, $53,915, $43,061 and $26,922 for the nine and three months ended September 30, 2012 and 2011, respectively)

(109,631)

(57,689)

(43,662)

(30,217)

Non-operating Income

395

--

--

--

Change in fair value of warrants liability

(187,823)

177,358

(95,756)

27,491

Income before provision for income taxes and non-controlling interest

3,497,630

4,001,538

1,272,240

1,655,751

Provision for income tax

(646,085)

(667,400)

(229,618)

(270,758)

Net income

2,851,545

3,334,138

1,042,622

1,384,993

Non-Controlling interest in (income) loss

1,411

(11,392)

(6,067)

(5,738)

Net income attributable to Dehaier Medical Systems Limited

2,852,956

3,322,746

1,036,555

1,379,255

Net Income

2,851,545

3,334,138

1,042,622

1,384,993

Other comprehensive income

Foreign currency translation adjustments

109,758

838,069

335,825

326,694

Comprehensive Income

2,961,303

4,172,207

1,378,447

1,711,687

Comprehensive income attributable to the non-controlling interest

(3,048)

(56,927)

(24,067)

(22,682)

Comprehensive income attributable to Dehaier Medical Systems Limited

2,958,255

4,115,280

1,354,380

1,689,005

Earnings per share

-Basic

0.62

0.74

0.23

0.31

-Diluted

0.61

0.74

0.22

0.31

Weighted average number of common shares used in computation

-Basic

4,570,311

4,507,582

4,578,571

4,510,000

-Diluted

4,695,684

4,507,582

4,703,945

4,510,000

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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